Addus Encouraged by EVV, MA Opportunities Ahead

Lifted by the closures of two sizable home health and hospice acquisitions, Addus HomeCare Corporation (Nasdaq: ADUS) posted steady financial results for the second quarter of 2018. The Frisco, Texas-based provider expects those financials to grow stronger, too, as the company positions itself to take advantage of M&A opportunities stemming from pending electronic visit verification (EVV) requirements and Medicare Advantage (MA) changes.

“[MA] is an exciting possibility for Addus and one in which we have been discussing with our MCO partners,” Dirk Allison, president and CEO of Addus, said during a Tuesday morning earnings call with investors.

Addus, which relocated its headquarters from the Chicago suburbs to Texas last year, primarily provides personal care services assisting with activities of daily living. In recent months, the company has made growing efforts to expand into home health and hospice services as well.


Addus currently provides home care services to about 39,000 consumers through 157 locations in half the country. It has about 31,000 employees.

In 2018’s second quarter, Addus grew its net service revenues by more than 26% on a year-over-year basis to $131.2 million from $103.4 million. Likewise, net income for Q2 of this year increased about 59% to $4.3 million compared to 2017’s second quarter mark of $2.7 million.

Adjusted EBITDA increased by about 32% on a year-over-year basis.


“[Addus] has been a favorite small cap name for some time,” Stephens analysts observed in a note issued Tuesday.

While Addus was once under the radar, its year-to-date shares are up 100%, as investors have taken notice that the company “sits in a sweet spot” as the one of the largest personal care providers in a fragmented market, the Stephens note stated. Addus is also buoyed by how the personal care industry is shifting from a commodity-like service to a means for lowering overall health care costs, according to the note.

Room for growth

Addus’ second quarter financial results were driven by both strong organic growth and the successful integration of its two recent acquisitions, Arcadia and Ambercare, completed April 1 and May 1, respectively.

The acquisition of Arcadia, a provider of in-home care services, for $18.5 million brought Addus into the markets of Florida and Wisconsin for the first time. The $40 million acquisition of Ambercare, meanwhile, helped Addus expand on the hospice front.

The integration of both businesses has gone smoothly, according to leadership, which noted that Addus still has the financial firepower to make additional moves in the year ahead. The company had cash on hand of $69.2 million and bank debt of $103.7 at the end of the second quarter.

Availability under its revolving credit facility was $90.4 million.

“We are seeing additional increases in our pipeline for potential acquisitions,” Allison said. “We’re working on a number of deals, none of which we’re ready to announce today.”

Those pipeline opportunities are largely for personal care services, he said, as hospice acquisitions are still seeing steep multiples. Addus expects to close at least one more transaction by the end of 2018.

In general, Addus is more often being viewed as a major M&A player, which helps its standing for finding and securing new deals. Besides its evolving reputation, Addus’ M&A outlook is also supported by its ability to meet looming EVV requirements, originally mandated by the 21st Century Cures Act for Jan. 1, 2019, and later pushed back until 2020 by Congress.

Despite the EVV deadline being delayed, many states are making aggressive pushes toward timely implementation, meaning added costs for some providers who have yet to make progress. EVV systems must be able to verify the type, date, location and duration of a home care service provided, according to policy. Systems must be able to verify who exactly gave and received services as well.

“Most states are moving forward very quickly,” Allison said. “That’s expensive for smaller personal care companies that have to make the IT investment with the states.”

The inability for smaller providers to make that investment could lead to more opportunities for Addus, he said.

Same-store sales for Addus increased by nearly 4% in Q2, consistent with the company’s target range of 3% to 5%.

Eyeing Medicare Advantage

Addus’ leadership also expressed optimism for future opportunities tied to Medicare Advantage changes planned for 2019 during Tuesday’s earnings call.

Non-skilled in-home care services will be allowed as a supplemental benefit for MA plans starting next year, the Centers for Medicare & Medicaid Services (CMS) announced in April. The benefit marks the first time CMS has allowed supplemental benefits that include daily maintenance in Medicare Advantage.

“This is an exciting possibility for Addus and one in which we have been discussing with our [managed care organization] partners,” Allison said. “While it is too early to tell what the potential impact could be for Addus, this is another positive step toward expanding the availability of our care services under a value-based payment system, and an indication of the increasing awareness of personal care services in improving the quality and lowing the cost of health care.”

State, local and other governmental programs account for about 58% of Addus’ personal care revenues, according to the company. Managed care organizations account for about 35%, with private duty and commercial payer sources accounting for the remainder.

Addus is looking to grow in the private duty market, according to leadership.

Challenges in Illinois

As it has been in the past, Illinois remains somewhat of a trouble spot for Addus.

Although Illinois’ budget stability has allowed the state to make its payments on time, Illinois has not increased those payments to offset minimum wage hikes. That, in turn, has meant lower margins for Addus.

Company executives said they are hopeful Illinois will pass offsetting payment increases in coming months, though they noted it is unlikely payment increases would be retroactive.

About 60% of Addus’ revenues are derived within the state of Illinois, according to the Stephens note. Illinois did not have a budget for the 2016 fiscal year, which delayed payments from the Illinois Department on Aging.

Written by Robert Holly

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